Well, King Henry I is perhaps admitting that Chapter 11 might be best for the Big Three after all. From the AP via the Boston Globe:
Bush administration officials were reviewing several approaches to assisting the automakers, including short-term loans from the Treasury Department’s $700 billion Wall Street rescue program. But Treasury Secretary Henry Paulson told a business forum in New York on Thursday night that while bankruptcy for the automakers should be averted if possible, an “orderly” reorganization might be the best solution.
“If the right outcome is reorganization or bankruptcy, then isn’t it better to get there through an orderly process?” Paulson asked.
Paulson said President George W. Bush wants to avoid bankruptcy — “if it can be avoided.” But Paulson said the No. 1 priority was getting U.S. automakers back on a viable path. Part of that effort, he said, would require all sides making sacrifices to boost competitiveness with foreign carmakers.
“It’s difficult to do such things outside of reorganization,” he said. “But sometimes that can be successfully done.”
As an old bankruptcy hand, let me describe some of things a debtor can do in a Chapter 11 case.
1. Restructure existing debt – including stripping down secured debt.
2. Write down tax debt – particularly property taxes.
3. Reject existing contracts with outside supplies, purveyors, landlords and the like.
4. Restructure labor agreements.
5. Shed pension obligations.
It’s the pensions and labor agreements that have the UAW in a lather. As some wag joked not long ago, GM is a social services provider that happens to sell a few cars. It’s the legacy costs that are killing the Big Three – agreements that they foolishly signed over the years. And now – to survive – they must undo these agreements. Naturally, the UAW is opposed:
The Big Three automakers said anew on Thursday that bankruptcy wasn’t the answer, as did an official of the United Auto Workers who called the idea unworkable and even dangerous. The car companies argue that no one would buy a vehicle from a bankrupt company for fear that the company might not be around to honor warranties or maintain a supply of spare parts.
This last point is rubbish. I own a Ford Expedition (best vehicle I ever owned) and I’ll buy another when the time comes. I’ll buy it whether Ford is in Chapter 11 or not. There’s this thing called the aftermarket that will provide service and parts in the unlikely event that Ford goes away.
Chapter 11 is inevitable. Let’s get on with it.
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